4 Officials Accused by Grand Jury in O.C. Bankruptcy : Finance: Two supervisors and county auditor face civil charges. Former budget director is indicted on criminal counts, which could lead to nine years in prison.

Concluding its probe into the nation’s worst municipal bankruptcy, the Orange County Grand Jury accused two county supervisors and the auditor-controller of official misconduct and indicted the county’s former budget director on criminal charges.

The civil accusations against Board of Supervisors Chairman Roger R. Stanton, Supervisor William G. Steiner and Auditor-Controller Steven E. Lewis could lead to their removal from office, and complete a sweep of the top elected officials who presided over the county’s loss of $1.64 billion. Those losses forced the county into bankruptcy Dec. 6 last year.

Former county Budget Director Ronald Rubino was indicted on two felony counts of aiding and abetting then-Treasurer Robert L. Citron’s skimming of more than $60 million from the accounts of other pool investors to satisfy the county’s appetite for funds. Rubino, who surrendered to authorities Wednesday, could face nine years in prison if convicted.

Citron already has pleaded guilty to six felonies involving fraud and misappropriation of public money and faces a maximum possible sentence of 14 years in prison and $10 million in fines when he is sentenced later this month. Citron’s top assistant, Matthew R. Raabe, has pleaded not guilty to the same charges that were brought against his boss, and has yet to go on trial.

None of those charged with misappropriating public funds is suspected of profiting personally from the alleged crimes.

The grand jury’s actions against Stanton, Steiner and Lewis involved the alleged “willful misconduct” of failing to oversee and keep a check on Citron’s operations.

Three other supervisors who held office in the critical months before the fiscal collapse--Thomas F. Riley, Harriett M. Wieder and Gaddi H. Vasquez--either retired or resigned in the bankruptcy’s wake, and escaped charges because the only penalty for misconduct is removal from office.

The civil accusations and lone criminal indictment announced Wednesday came just 18 days before the end of the grand jury’s term, which was extended from one year to 18 months to give the panel more time to investigate the bankruptcy.

District attorney’s officials say the investigation into the bankruptcy-related activities of people both inside and outside county government will continue with a new grand jury that will be impaneled in January. That grand jury will focus on alleged wrongdoing by municipal finance firms whose actions purportedly contributed to the collapse of the county’s investment pool.

The current grand jury’s actions came after jurors had reviewed parts of more than 1.5 million documents and heard testimony from more than 100 witnesses, including supervisors, lobbyists and county bureaucrats from all levels of government.

Elected officials accused of misconduct in office have the same right to a jury trial as criminal defendants. The charges against the supervisors hinge on whether it can be proved that they had both “knowledge and intent” to violate state laws, attorneys said. A verdict of 12-0 must be reached to convict. If the accusation is upheld, the penalty is removal from office.

According to the grand jury’s accusation, the two supervisors failed to “safeguard the financial health of the county” by allowing Citron to engage in risky investments.

Specifically, the civil accusations allege that over the past two years the supervisors willfully failed to:

* Make adequate inquiries into the county’s borrowing of more than $1.7 billion.

* “Supervise the official conduct” of Citron, Raabe, Lewis and former County Administrative Officer Ernie Schneider.

* Require monthly reports of the treasurer’s investments.

* Question the county’s budgetary reliance on interest earnings.

* Investigate allegations from Citron’s political foe John M. W. Moorlach and a water district official regarding the risk and possible market losses in the county’s investment pool.

* Monitor county investment practices and policy that involved heavy leveraging and highly volatile securities.

Furthermore, the supervisors were accused of failing to “offer assistance to the county staff in analyzing or solving the problems” in the treasurer’s office and with the investment pool after the bankruptcy declaration.

Lewis was accused of not doing his job by failing to “accurately compute, compile, calculate and report the cash flow projections for the county” and “failing . . . to determine the source, the existence and the misallocation of earned interest” when he learned the county treasurer was stockpiling excess interest for misappropriation.

The accusation filed against Lewis also contends that he “willfully approved of . . . and encouraged” the county to borrow more than $750 million, knowing that it would have less than $500 million with which to repay it.

Through their attorneys, all three elected officials denied wrongdoing and vowed to fight the charges. Attorneys for the supervisors also attacked the district attorney and the grand jury, accusing them of pursuing political agendas.

Attorney Wylie A. Aitken, who represents Stanton, said the district attorney “manipulated the grand jury” into “advancing an absurd position. This type of Monday morning quarterbacking will have a chilling effect” on people who might consider public service.

Aitken added that the accusations against the supervisors might also have the serious consequence of undermining the county’s $2-billion lawsuit against Merrill Lynch & Co.--the firm the county holds responsible for its bankruptcy.

Merrill Lynch, which denies any wrongdoing, declined to comment on the grand jury’s actions.

“The champagne corks must be popping in the corporate offices of Merrill Lynch and others,” Aitken said, because the grand jury’s decision places blame on the supervisors instead of Wall Street.

Attorney Allan H. Stokke, representing Steiner, said his client “has no intention of resigning. He’s extremely disappointed the grand jury would even consider following this recommendation by the district attorney. . . . He’s ready to do battle and fight this accusation.”

Referring to the accusation that both supervisors failed to investigate campaign charges of Moorlach, Stokke said he was “amazed” that the district attorney would attempt “to remove someone from office for not listening to a political candidate.”

Brian Sun, an attorney representing Lewis, said: “I sincerely believe that the district attorney’s office is dead wrong,” adding that Lewis “obviously, vigorously denies [the accusation] and will defend himself.”

In a brief statement, Lewis said, “I’ve served Orange County for over 30 years. My work with the county represents my entire professional career. I am proud of that career and the reputation of my office.”

Lewis went on to say, “My staff and I performed our duties as best as we understood them. . . . I believe the auditor-controller’s office did its job and is not responsible for the county bankruptcy.”

Prosecutors said they originally considered seeking charges against Vasquez, Wieder and Riley. But once they settled on civil accusations instead of criminal charges, plans to proceed against the former supervisors were dropped, since they were already out of office, rendering moot the penalty for willful misconduct.

The accusations against the three elected officials had been expected for several weeks and came as no surprise.

Both supervisors and the auditor had hired defense attorneys in anticipation of the grand jury’s action. Steiner has been the most outspoken in defense of himself. The former director of the Orangewood Home for abused and neglected children repeatedly has said he was only on the board for about 18 months before the county’s bankruptcy.

In a preemptive strike against the grand jury and the district attorney’s office, Steiner’s lawyer unsuccessfully attempted to halt the panel’s secret proceedings because of conflict-of-interest issues.

Stokke said he will renew those motions when the supervisors appear in court Dec. 28 to face arraignment on the accusations. Rubino is scheduled to be arraigned Dec. 27.

The conflict motions are certain to shine a spotlight on Dist. Atty. Michael R. Capizzi. The supervisors contend that Capizzi has many conflicts and has received nearly as much information about the condition of the county’s investment pool as they did. If they are guilty of wrongdoing, the supervisors contend, so is Capizzi. For example, they said, Capizzi has close ties to board members, recently had his budget cut by them, and received a copy of the same 1993 internal audit sent to supervisors, warning that Citron’s practices violated the law.

“This is a crass political attempt by the district attorney to remove people from office to advance his own career,” said Aitken. “I suspect when the truth comes out, there will be a shattered career, and it’s not going to be Roger Stanton’s.”

Steiner agreed, saying, “It seems to me the D.A. is trying to take the heat off his own failure to act.”

Maurice Evans, Capizzi’s chief assistant, disputed accusations that the district attorney was as culpable as the supervisors, and added: “It’s still our position that there is no conflict of interest.”

Reaction to the grand jury’s action was mixed. Some praised the development, saying it fixes blame on those responsible for the county’s financial disaster, while others questioned the purpose of going after two supervisors who already have vowed not to run for reelection.

Stanton, whose term expires in December 1996, may even be out of office before his case could go to trial. Steiner’s term ends in December 1998.

Capizzi said the accusations against the elected officials are quasi-criminal charges, and said: “We felt that this was the most serious charge that could be sustained by the evidence.” He said that he did not foresee further charges against the supervisors and that his office will push to get cases resolved long before the supervisors’ terms expire.

The most serious action was taken against Rubino, who left his $95,500-a-year county job in April 1994--eight months before the county declared bankruptcy--to enter the municipal finance business. He is widely credited with developing the county’s plan to replace lost state funds--shifted away from cities and counties by the Legislature--by issuing bonds and investing the proceeds in the county pool administered by Citron.

Rubino walked into the Santa Ana courthouse Wednesday unaccompanied by an attorney but surrounded by a half a dozen prosecutors and investigators. Wearing a gray suit, he stood silently, except for muttering “yes” when asked by Superior Court Judge John Ryan if he understood the charges against him.

Rubino was led out of the courtroom, fingerprinted and booked into the Orange County Jail, where he was expected to be released on his own recognizance.

Assistant Dist. Atty. Jan Nolan declined to discuss the case against Rubino in detail, but suggested that she thought the evidence against him was strong: “I wouldn’t file a case unless I thought I could prove it beyond a reasonable doubt.”

Times staff writers Dexter Filkins, Mark Platte, Michael G. Wagner and Tracy Weber contributed to this story.

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Targeted in Orange County

The Orange County Grand Jury on Wednesday accused three county officials of willful misconduct and indicted the county’s former budget director.

CRIMINAL CHARGE

Ronald S. Rubino

Age: 44

Title: Former county budget director. Resigned months before bankruptcy to work for Leifer Capital in Santa Monica.

Accused of: Two felony counts of aiding and abetting misappropriation of more than $60 million in public funds.

Faces: Possible nine years in prison.

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CIVIL CHARGES

Roger R. Stanton

Age: 58

Title: County supervisor, for 15 years. Has announced he will not seek reelection when his term ends next December.

Accused of: Willful misconduct.

Faces: Possible removal from office

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William G. Steiner

Age: 58

Title: County supervisor, appointed two years ago. Has announced he will not seek election when his term ends in 1998.

Accused of: Willful misconduct.

Faces: Possible removal from office

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Steve E. Lewis

Age: 52

Title: Auditor-controller, since 1984; worked for Orange County for 30 years. Has been relieved of auditing duties, but retains title.

Accused of: Willful misconduct.

Faces: Possible removal from office